IBM will be acquiring software company Red Hat for USD34 billion (~RM142 billion) to expand its enterprise cloud computing reach. Previously known as a hardware firm, IBM sold out it’s hardware division to China-based Lenovo to focus more on enterprise and web hosting services. It has recently been making in-roads into cloud-computing, predicting that it will be the next big thing in data management.

Red Hat was previously in the business of providing open source software and services to enterprise customers. In 2012, it managed to achieve USD1 billion in revenue, being the first ever open source software company to do so. Red Hat achieved success by charging fees to its customers for services such as custom features, maintenance and technical support. This will provide IBM with a steady income in subscription fees. With the buy-out, it will become part of IBM’s Hybrid Cloud division.

IBM will maintain Red Hat CEO Jim Whitehurst and Red Hat’s current management team as is. All headquarters, facilities, brands and practices will be maintained as well. Elsewhere, IBM’s competitor Dell Technologies made a big investment in cloud computing several years ago, by purchasing data storage team EMC for USD67 billion (~RM280 billion), which gave them controlling stake of VMWare Inc.

IBM has a market capitalisation of USD114 billion (~RM476 billion) and will be paying USD190 (~RM794) per share in cash for Red Hat.

Ginni Rometti, CEO for IBM since 2012 commented “This acquisition we are clearly doing for growth synergies. This is not about cost synergies at all.”